Alberta household debt tops Canada

CALGARY ? Average household debt in Alberta was the highest in the country in 2009, says Statistics Canada.

In a report released Friday, the federal agency said the average in the province was $157,700 compared with $114,400 for the entire country.

Alberta was followed by British Columbia at $155,500 and Ontario at $124,700.

?The concentration of debt in these regions generally corresponds to higher real estate prices,? said the Canadian Financial Capability Survey.

Together, these three provinces held three out of four dollars of household debt in the country, said the survey.

It said nearly 60 per cent of household debt in Canada was held by those under 45 years old and nearly half was held by couples with children.

?In response to the low interest rate environment following the credit market meltdown, Canadians have become even more deeply indebted than their neighbours to the south were before the Great Recession,? said Queen?s University finance professor Louis Gagnon. ?Property prices in Canada won?t rise indefinitely and interest rates will rise eventually so it is high time for Canadians to heed the warning calls, to put themselves in risk management mode, and to ease off on financial leverage.?

According to a new report released Friday by Douglas Porter, deputy chief economist with BMO Capital Markets, and Benjamin Reitzes, senior economist with BMO Capital Markets, financial stability for Canadian homeowners in the coming years will be supported by locking-in and opting for shortened amortization periods.

The report notes that over the past few years, BMO Economics has supported choosing variable rates. However, the view has changed based on current offers on long-term mortgage rates and interest rate increases expected over the next two years.

?Our interest rate outlook now projects that fixed mortgage rates will trump variable. While the decision ultimately depends on the individual, the low rate combined with a shorter 25-year amortization will significantly strengthen household financial stability,? said Porter. ?For those who are without financial flexibility and would run into difficulty from a pronounced upswing in interest rates, the potential extra cost for the protection of household finances now appears to be a price well worth paying.?

Porter said low interest rates may not last as long as many had previously expected, giving a significant advantage to choosing a fixed rate.

?The bond market, in particular, is sending loud warning signals that the era of low interest rates may finally be drawing to a close. So, even if variable rates take some time to climb, we may not see such low fixed rates again any time soon,? he said.

mtoneguzzi@calgaryherald.com

? Copyright (c) The Calgary Herald

Source: http://www.calgaryherald.com/Alberta+household+debt+tops+Canada/6348142/story.html

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